Baylor, St. Luke's joint venture gets clearance

Federal approval allows proposed partnership to enter next phase

Federal regulators have given Baylor College of Medicine and the new owner of St. Luke's Medical Center clearance to move forward on a joint venture, a potentially landscape-changing development in the Texas Medical Center.

The Federal Trade Commission granted Baylor and Catholic Health Initiatives approval under its pre-merger notification program, and after a 30-day review found no anti-trust issues. Approval was posted Monday on the FTC website.

"(Catholic Health) and (Baylor) continue negotiations on other issues involving this proposed transaction," said a statement issued Tuesday by the two institutions. It referred to the FTC notice as "just part of the process."

Sources familiar with the discussions said the two parties hope to announce the joint venture in early January.

Baylor and Catholic Health announced in mid-October that they had entered into exclusive negotiations to become clinical partners but declined to provide any details "before a final and definitive agreement is reached." Its statement at the time said the two expect to finalize an agreement within 90 days.

The deal, which sources say involves Catholic Health finishing Baylor's long-shelved hospital project and the two collaborating on acute-care there, would give the elite medical school the private adult hospital it desperately needs.

The lack of such a hospital, unique among elite medical schools, has caused Baylor serious financial issues since its 2004 divorce from Methodist Hospital, its partner for half a century.

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A Baylor-St. Luke's joint venture, particularly if anchored at the medical school's hospital complex near the DeBakey VA Medical Center, would mark a dramatic turnabout from the era when the medical school was partners with Methodist, and St. Luke's was considered the private-practice alternative to the medical center's academic hospitals.

It's unclear what Catholic Health's plans are for the aging St. Luke's hospital and its adjacent doctor's offices, whose twin towers are the Medical Center's most famous landmark.

$70.9 million deal

Baylor and Catholic Health filed notices under FTC and Department of Justice requirements that any proposed deal valued at more than $70.9 million must be reviewed to determine whether the transaction would give parties involved an unfair market share.

The FTC typically reviews such filings involving hospitals.

In giving approval, the FTC declined to request more information and conduct a full investigation.

The approval was expected because Colorado-based Catholic Health, a national chain that last spring bought St. Luke's from the Episcopal Diocese of Texas, owns no other hospitals in Houston. Baylor only has affiliations with other Houston hospitals.

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A Baylor-Catholic Health merger would constitute success for the Houston medical school after two recent failed merger attempts with Texas institutions.

The medical school spent more than 15 months trying to negotiate a merger with Rice University before the two called the talks off in January 2010. It then spent a few weeks in merger talks with Baylor University in Waco, its parent until 1969, before souring on the idea.

A joint venture with Catholic Health would also mark Baylor's second major partnership with St. Luke's. The two entered into a primary affiliation after the Baylor-Methodist split, but the contract wasn't renewed after three years as the medical school decided to instead build its own hospital. The two still have a "secondary" affiliation.

Some clinics open

The project foundered and was left unfinished except for the exterior.

In 2012, Baylor President Dr. Paul Klotman announced that the school would use the hospital as part of a grand outpatient care center. Some of the clinics at the center recently opened.

Catholic Health would need more hospital space in addition to the Baylor facility because it was designed for 250 beds. St. Luke's is licensed for about 700 beds.